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Final Group Project
The issues on fixed exchange rate system of China
- Why U.S. wants china to revaluate CNY? -
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¥°. Introduction
¥±. Overview of current situation
¥². Economic analysis of the case
¥³. Conclusion
Content
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Part 1 ::
Introduction
01 Brief summary of the article
02 The reason why we choose our topic
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What is our topic?
US government argues that China should appreciate its currency, but China sticks to fixed exchange rate system since global financial crisis.
I think that China is manipulating its currency¡±
¡°China would keep the CNY stable at an appropriate and balanced level, rather than flexible.¡± (On March 4, 2009)
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Brief summary of the case
Source : ¡°Detroit Rules, OK?¡± Economist, March 30, 2000
He argues that international trade imbalances is gett¡¦(»ý·«)
¨ç free capital mobility
¨è fixed exchange rate system
|
erview of current situation
01 Background information
02 Current situation
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Background Information
How does China fix the exchange rate?
But, free capital mobility is NOT applied to China!
Central
Bank
Market
CNY
U.S. $
(1 + r) = (1+r*)
r* = foreign country¡¯s rate
e = future spot rate
= expected future spot rate
Precondition :
¨ç free capital mobility
¨è fixed exchange rate system
Monetary policy is possible.
Interest parity condition
[Largest U.S. $ holding country ]
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Absolute P.P.P
Relative P.P.P
[CNY P = $P? R]
[R = CNY P/ $P]
Equilibrium exchange rates are equal to the ratio of price levels in the two nations.
Change in the exchange rate is equal to the difference in the change in the price levels.
Current situation
How much is CNY devaluated? - PPP theory.
What is Purchasing Power Parity theory?
The law of one price : in the absence of barrier to trade the p